China Focus

Product Clustering

By Dr CS Lim

My recent experience as a judge
in Qingdao Furniture Exhibition
and Nankang Furniture
Exhibition has led me to
consider a phenomenon: I
noticed a several “blocks” at both
exhibitions. For example in Gaomi, many
factories are producing large and rough
wooden frame sofas, this is one “block”; in
Gaomi, there is another “block” that makes
northern European designs; In Jiaodong, there
are similarly designed bedroom furniture and
pinewood child bunk bed “block”.

It is the same in Nankang, where a village or city
creates only one category of product each and
produces them in bulk. This makes deciphering
the winner of furniture design a difficult task.
Every design from each place looks the same,
even down to the materials used, production
technics, and the machinery. The only way
to pick out a winner is by choosing one with
the larger scale, and more meticulous in their
work. Most furniture judges who took the stage
spoke about how there should not be too many
homogeneous products. Ferocious competition
in the market would drive homogeneous
product prices very low.

The common theories about success among
business management discussions would
Include the following:
— Lowering costs
— Stabilizing product quality
— Differentiation

Talk is easy, but to execute these strategies in
reality is not. How do you keep your costs lower
than everyone else when their cost is already
low to begin with? Take Ikea for example,
they expect to lower costs every year, which
means lowering their suppliers’ prices. These
suppliers suffer through it and some even end
up collapsing under the pressure. It is not easy
to keep costs low. Of course there are some
who lower costs by cutting corners but we are
not here to talk about that.

On stable product quality, we do not speak of
highest quality, because it is “not worthwhile”.
Every product has an expiration date in this
industrialized era. Take for instance the car, it has the usual lifespan of around 10 years. It
is the same with furniture. In the days of old,
furniture was passed down from generation to
generation. This was during the agricultural
age, where the ideology of beauty did not
change rapidly and people did not own many
materialistic things. These days, European
and American home furniture are treated
as “fashion” accessories whereby they are
replaced before reaching ten years of usage.
The products from Ikea and such would
be replaced within 3-4 years therefore the
products would only need a durability of about
4 years.

Of course there are still a few furniture
producers with the “craftman’s spirit”, who still
pursue products that last 100 years. And there
are “cultural scholars” who call for
products that could be passed down to future
generations, products that antique stores
and scavengers would collect, to be sold to
those who would put it on display at home
to “show off”. I neither discourage nor
encourage these practices because at the end
of the day, these are small scaled markets.

The most difficult of all is creating product
differentiation. In theory, differentiation
comes from innovation. When your product
is different from others, there are no ground
for comparisons. Therefore, there will be less
pressure to compete on pricing, creating a socalled
blue ocean market.

But most furniture companies are unable to
differentiate. Why is that?

* The lack of talents in design. There is a
relatively low number of design talents in
China. Designing a product that sells well and
with market longevity, is few and far
between.

* No confidence in the market. A design needs
to be cultivated for a long time before achieving
market recognition. If a design is not recognized
by the market after a long time, medium and
small companies might be discouraged, might
even be forced to shut down. Some companies
might never get the courage to try new designs
in the future because of this.

* Regional collaborative production, like those
found in Gaomi, Pingdu in Shandong, Muar
in Malaysia, even in Italy and Japan. Every
factory produces only one category of the
final product. For example, one manufacturer
produces only dining chairs, another produces
another part, like a table top. These factories
and the parts produced would then come
together to be assembled into the final product.
This collaboration makes production highly
efficient but only for two or three designs. This
type of production would not be able handle
too many designs.

Productivity increases while costs are lowered
but because there are no differentiation
to the designs, prices are low and so are
profits.

No one would compete with these designs,
but from the business standpoint, those that
only produce their own design (differentiation)
might even yield a higher total profit. But it is
not easy to differentiate from the crowd. There
will constantly be uncertainties starting from
the product design to production. This type of
production is not for everyone.

That is why we always advocate for both
regional collaborative production and
differentiation, which are often contradictory.

And thus I often wonder, does our business
cluster resemble the economic model as
described by Michael Porter or product
clusters? Products with the same style, same
category, competing on homogeneity?

Industry clustering as described by Michael
Porter is an advanced economic model with
vertical and horizontal collaborations while
product clustering is for mass market when one
or two products are overproduced, lowering
the market value.

However it is serious homogenization.

DR LIM CHEOK SIN
President, Council
of Asian Furniture
Associations
Professor, Beijing
forestry University
, currently the
Chairman of the
Council of Asian
Furniture Association
(CAFA). He read at
Nanyang University
in Singapore and
completed his PHD
at Beijing University
of Forestry. He holds
a Post Doctorate
from Michigan State
University and is a
visiting scholar there.
Dr Lim has been active
in the Singapore
furniture industry,
chairing both the
Singapore Furniture
Association and
Furniture Association
of Asia and Pacific
previously.

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